New Directions

Our Economic Defining Moment Looms

On November 20th of 2008 the Dow Jones Industrial Average closed at 7552. Today, the 5th of January 2009 the Dow closed at 8952 – a gain of 1400 points in a little over a month. Why is this of interest? It’s because while investors have been steadily, more or less, coming back to the stock market many of the world’s leading economists have been offering dire predictions for the economy. Today, Paul Krugman, a columnist for the New York Times and the recent winner of the Nobel prize in economics, wrote in his column that, “This looks an awful lot like the beginning of a second Great Depression.”

Yet, there has been a steady month of buying activity on Wall Street. Why? Do the investors know something we don’t know? Has the market already hit bottom, priced in all the forseeable bad news, and now, as usual, the market will lead the actual economy? Or is this only a bear market rally – a sucker’s rally? Is the market about to nosedive again? I guess it depends on your point of view, people look at the same set of data and interpret it differently all the time. The thing is this: they can’t both be right. Someone has it completely wrong. Somehow, I don’t think it is the world’s leading economists.

Which brings me to Barack Obama. As Krugman points out in his article, Obama is calling for a massive spending plan to stave off Great Depression II. Meanwhile, Krugman wonders if Obama’s massive spending plan is massive enough. He is also worried about Congressional Republicans who may try to block Obama’s legislation. The Republican’s could halt the passage of Obama’s rescue plan because the Democrats don’t control enough seats. One has to wonder: how in good conscience could the Republicans do that? Don’t they care about this country? Well, yes they do – in a way. It’s just in a different way from the Democrats. The Party of Herbert Hoover and George Bush doesn’t see things the way the average American does. Which, by the way makes it incredible that a lot of average Americans actually vote for them – but they do.

It’s not that there is an issue about financial management techniques and what will work and what won’t. Sure, Krugman points out that there are philosophical differences between economists who follow Friedman and those who believe in Keynes, but in the end that isn’t the issue. Keynes has already been proven correct in the past and Friedman has been shown to be incorrect – yet Republicans won’t embrace Keynsian economics. Why?

Well, as John McCain might say, it comes down to the “redistribution of wealth”. Keynes was an advocate of truly massive government spending to create employment for the average person as the best method of getting the economy out of a death spiral like the one we are in now. Friedman believed that the solution was to simply give lots of money to the banks to increase “liquidity”. This was the plan that Treasury Secretary Paulson pushed through on behalf of his cronies at Goldman Sachs and the other banks. The problem is that while the banks have been reimbursed for their losses from their foolish investments they don’t want to lend any more money. Once burned, twice shy, as they say.

We are now at a moment, a defining moment, as Barack Obama might say. We are about to see a proxy struggle in Congress waged between two classes of society: the wealthy versus the average American. If the wealthy win, i.e. the Republicans, we will get the Herbert Hoover result: a grinding Depression full of misery. If the average American wins we will get the Franklin Roosevelt result: a slow climb out of economic abyss. This is our moment America. This is the moment that will define us and how we live for the next generation or more. It’s not just a difference of opinion about the best technical method to solve a problem; it is, as John McCain said, class warfare. Except that this warfare will be waged in Congress camouflaged with lots of speeches and chest thumping and flag waving and appeals to patriotism. Just remember, it’s really only class warfare. It’s a struggle to determine whether the wealthy will get to keep their massive fortunes while average Americans starve, or instead will democracy and fairness finally prevail in this country that has suffered so much under the Imperial Presidency of George Bush.

Pull up a chair a couple of weeks from now and watch. It’ll be great theater, full of wonderful performances, and the best thing of all is – you’re in the play!

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